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PREIT lands renewal of its credit line

Ron Rubin wasn't nervous. At least, so says one of his top executives. But even Rubin couldn't downplay yesterday what his company had just pulled off.

Ron Rubin wasn't nervous. At least, so says one of his top executives. But even Rubin couldn't downplay yesterday what his company had just pulled off.

Pennsylvania Real Estate Investment Trust, which plunged into debt to renovate Cherry Hill, Plymouth Meeting, and other local shopping malls, had just sealed a deal on $670 million in new loans.

Its old loans were about to expire, and PREIT needed a re-up. Less-fortunate companies that failed to do that have gone belly-up in this recession. Investment analysts wondered whether Rubin's company would be next in line at Bankruptcy Court.

"These are tough times, and every transaction is an adventure," Rubin, PREIT's chairman and chief executive officer, said in an interview.

What if his Center City-based real estate conglomerate had not persuaded Wells Fargo & Co. and 14 other lenders to replace its maturing debt with the new line of cash?

"I wouldn't even want to think about it," Rubin said. "It's not anything we ever had to think about because we were always confident."

PREIT announced yesterday that it made final an agreement with a syndicate of domestic and international banks to fully replace a $500 million unsecured credit line and a $170 million unsecured term loan that were set to expire March 20.

The banks, led by Wells Fargo, agreed to float the company a reduced $150 million credit line and a bigger $520 million package of term loans - but with 22 mortgages posted as collateral on the $670 million life raft.

The announcement, on the eve of today's scheduled annual earnings release, puts to rest investor concerns at a time when banks are exceedingly cautious about extending credit to businesses. Long gone are the days of getting big, cheap loans without so much as a gold-plated bangle posted as collateral.

"This transaction is a good and a very important one for the company," Rubin said. "I'm very happy we have it behind us, so we can go about with our business." The publicly traded firm had been working on the deal for "probably the last six months," he said.

"This is a great day," said Joseph F. Coradino, the PREIT mall-leasing executive who motioned with verve at Rubin, seated beside him at a conference table at company headquarters, and declared, "He doesn't get nervous."

Investment analysts, however, had been nervous. And for months.

PREIT had drawn almost all the $500 million available on its credit line. Like a consumer whose credit card is about to expire, it faced the prospect of being told to pay in full unless it could persuade Wells Fargo and the others to stay on board.

Failure to negotiate a renewal potentially could have forced PREIT into bankruptcy. Debt had propelled one of the nation's largest mall companies - General Growth Properties Inc., owner of Neshaminy and Christiana Malls - into Chapter 11 bankruptcy more than a year ago. Just last week, Bensalem-based Orleans Homebuilders Inc. filed for bankruptcy protection after defaulting on a $350 million credit facility.

Rubin said investors "will probably be very happy" now that the "uncertainty" is over.

"This takes it off the table. They live to fight another day," said Jonathan D. Miniman, senior vice president of ING Clarion Real Estate Securities L.P., of Radnor. "The company continues business as usual."

The new loans are good for three years with a one-year extension option, Miniman said, but they contain some "onerous" conditions, including that the company reduce the balance by $100 million over the next three years.

Moreover, the initial interest rate of roughly 4.9 percent is higher than the 2.5 percent pegged to the old loans. But Miniman said it was surprising that the banks did not reduce the size of the loans.

"I'm surprised that they got the full $670 million commitment," he said.

Rubin's long-standing relationship with Wells Fargo had much to do with the success of the deal, officials at PREIT said.

Because of it, Wells Fargo could help smooth over the other lenders' concerns and sell them on the deal, Coradino said.

PREIT's large debt load stems from the $1 billion redevelopment project it launched in 2005 to overhaul some of its regional malls - part of a growth strategy hatched two years earlier, when the company acquired many of the properties

Nearly half of that $1 billion has gone to malls in South Jersey and Southeastern Pennsylvania, PREIT's bread-and-butter market.

At Cherry Hill Mall, a $220 million makeover included a Nordstrom store that opened last year. An additional $100 million at Plymouth Meeting Mall paid for a new strip of outdoor shops, restaurants, and a Whole Foods market.

An additional $80 million was devoted to the former Strawbridge's location at The Gallery at Market East in Center City, which was converted into office space and got other improvements. About $80 million went to the former Echelon Mall in Voorhees.

At Cherry Hill Mall, retailers at stores open at least a year have reported double-digit overall monthly sales increases since August. It was not among the 22 properties posted as collateral because it already was encumbered with a mortgage.

Among the 51 Mid-Atlantic malls PREIT owns are Moorestown, Exton Square, Springfield (part-owner) and Willow Grove Park. PREIT also is half-owner of the Metroplex Shopping Center in Plymouth Meeting and Springfield Park in Delaware County.